Are Any Pipeline Companies A Buy Right Now?

Energy investors have been enjoying halcyon days in 2012. Oil prices have been high, production is gushing, and earnings per barrel is increasing. True in October, crude fell slightly as oil on the New York Mercantile Exchange eased from $92.19/bbl on September 28 to $86.28 on October 26, but so long as oil remains above $70, oil companies will be making money hand-over-fist. But while a lot of attention has been given to energy producers, companies that transport crude oil, especially pipeline companies, are doing record business.

The question comes down to the changing macroeconomics of the North American energy production. In a previous article, I discussed how factors including European economic turmoil, worries over Israel and Iran, as well as residual effects of the Arab Spring were keeping world crude prices above $100/bbl. Meanwhile, increased production in places like Texas, North Dakota, Ohio and Canada were keeping regional spot prices $20-$30/bbl, or lower than world prices. This was in part because of inadequate pipeline assets to transport mid-continental crude has fallen behind its ability to transport all of the production.

Additional pipelines in Canada, California and other parts of the U.S. Midwest have been bogged down in regulatory and environmental approval, leading many refining companies to seek out desperate measures to get their oil feedstock. For example, Phillips 66 (NYSE:PSX) leased 2,000 rail cars to transport feedstock from Canada and North Dakota to its refining facilities.

Buckeye Partners, L.P.

Buckeye is one of the largest independent operators, with its business divided into two separate areas. It owns its own facilities In the Northeastern and upper Midwestern states. It also manages, operates and maintains pipelines under service contracts for others, primarily along the Gulf Coast.

The company has a recent share price at $48.10 with a $4.15 annual dividend, producing a yield of 8.70%. It has a 52-week trading range of $44.55-$68.45. Buckeye's price earnings ratio is at 80.98 from earnings per share of $0.59. It has a current ratio of 1.06 and a price per book of $1.92.

The management's effectiveness is reflected on a return on assets (ROA) and return on equity (ROE) of 3.89% and 2.46%, respectively. It had a disappointing quarterly earnings growth rate of -40.90% in its most recent quarter. In fact, most of is numbers were disappointing in its 3Q announcement.

Buckeye's numbers are down in part because it is in the midst of purchasing new facilities and investing in new infrastructure. Long term I believe it is a solid investment, but I would place it on my watch list for now. I would prefer to see earnings start to rise first before I took a plunge.

Magellan Midstream Partners, L.P

Magellan is the big dog in refining, and owns the longest refined petroleum products pipeline system in the country. In fact, it accesses more than 40% of the nation's refining capacity, and can store 80 million barrels of petroleum products such as gasoline, diesel fuel and crude oil. The company has a market cap of $10.10 billion and an enterprise value of $11.86 billion.

The company's recent share price was at $43.97 with a $1.89 annual dividend, producing a yield of 4.30%. It has a 52-week trading range of $30.88-$45.58. Its price earnings ratio is at 22.24 from earnings per share of $2.00. It has a current ratio of 1.92 and price per book is at $6.58.

Magellan's return on assets (ROA) and return on equity (ROE) of 8.84% and 30.44%, respectively, are indicative of management's effectiveness. Quarterly earnings growth rate was 33.80% in its most recent quarter.

The company's board of directors has increased the dividend 41 times since 2001. The new distribution, which equates to $1.94 per unit on an annualized basis, will be paid November 14 to unit holders of record at the close of business on November 6 -- this after a recent 2-for-1 split.

The company is strong, with solid financials, and a board that is actively looking to increase shareholder value. I like Magellan for conservative investors with long investment horizons.

Sunoco Logistics Partners L.P.

Sunoco Logistics Partners L.P. was formed with Sunoco, Inc (NYSE:SUN) as its General Partner. In fact, the parent Sunoco, owns about 33.2% of the partnership units and around 13.1% of the total revenues.

The partnership's recent price was at $49.27 with a $1.88 annual dividend, producing a yield of 3.80%. It has a 52-week trading range of $31.65-$51.86. Its price earnings ratio is at 14.80 from earnings per share of $3.43. Current ratio is at 1.06 while price per book is at $4.35.

Its return on assets (ROA) and return on equity (ROE) are 7.05% and 35.23%, respectively, while quarterly earnings growth rate was 61.70% in its most recent quarter.

Sunoco is closely tied to its parent, but both are doing well in the current environment. The management team is looking to aggressively grow the company, which has excellent long-term prospects. This is a good buy, at least for the medium term.

Tesoro Logistics LP

Tesoro Logistics LP is a master limited partnership formed by Tesoro Corporation (NYSE:TSO) in 2011 to own and develop crude oil and refined products logistics assets including pipelines. The partnership has a market capitalization of $.36 billion and an enterprise value of 1.48 billion.

It has a recent share price of $44.90 with a $1.82 annual dividend, producing a yield of 4.10%. The partnership has a 52-week trading range of $25.10-$47.24. Meanwhile, its price earnings ratio is at 20.48 from earnings per share of $2.19.

Tesoro has a healthy current ratio of 2.25 and its price per book is at $16.83. Return on assets (ROA) and return on equity (ROE) are at 18.02% and 58.91%, respectively. It reported an impressive quarterly earnings growth rate of 173.50% in its most recent quarter.

The partnership recently closed a 3 million share public offering, which will have a forward-looking dilution effect from its 3Q reports. The unit price has leveled, partly from the PO and partly from roiling in the stock market, but I expect Tesoro -- both the general partner as well as the pipeline Master Limited Partner -- to have a strong 2013. This is a good buy, but might need to be watched more closely over the next 12 months to see how it grows.

Kinder Morgan, Inc.

Kinder is one the largest midstream and energy companies in North America. It is also one of the more diverse pipeline companies regionally. It has a market capitalization of $35.98 billion and an enterprise value of $71.63 billion.

The company's recent share price was $34.38 with a $1.44 annual dividend, producing a yield of 4.10%. It has a 52-week trading range of $26.91-$40.25. Kinder Morgan has a negative earnings per share at $-0.63.

It has a current ratio of 0.75 and its price per book is at $2.52. Return on assets (ROA) and return on equity (ROE) are at 2.78% and 7.10%, respectively. It reported a quarterly earnings growth of 32.00% in its most recent quarter.

Kinder Morgan Inc. is aggressively expanding, and turned in a monster 3Q for 2012 when it reported on October 17. Best yet, as it is based in Houston, TX, it is situated in the dead center of the mid-American continental oil plays. This gives it outstanding access to the production plays with the highest expansion and demand. Kinder is probably the most aggressive play, and also probably will see the highest volatility of the businesses in this screen for the near term. But that juicy and rapidly expanding dividend is attractive to more aggressive investors.

Disclosure: I am long PSX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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